Homebuyer Heartache In The Holy Land

Modi’in Illit, the West Bank — For anyone thinking of purchasing an Israeli apartment scheduled to be built in a year or two — many of whom are likely to be Americans, given the foreign investment boom — let the buyer beware.

So says Chaim, a clean-cut 24-year-old fervently Orthodox father of one, with another on the way, who purchased an apartment from the building company Heftsiba in this fervently Orthodox settlement just over the Green Line.

The apartment, which was slated to have two bedrooms plus building rights, was to be part of a new neighborhood on a hill, with a spectacular view of the surrounding mountains and their ancient biblical topography.

Though Chaim — whose belief in religious modesty prevented him from providing his last name or being photographed — purchased the place two-and-a-half years ago and was supposed to move in a year ago, it hasn’t turned out that way.

First, Peace Now, an organization opposed to Israeli settlements, asserted that the land belonged to Arabs and went to the High Court to prove it. Then, just two weeks ago came word that real estate giant Heftsiba, which has built communities all over the country and beyond, was about to declare bankruptcy.

The reasons for Heftsiba’s collapse appear to be complex. Its project in Modi’in Illit has been slowed by litigation related to the Peace Now lawsuit; there has also been competition from other builders and suspected financial mismanagement on the part of some of its officers. This week three of top Heftsiba officials were placed under house arrest on charges ranging from fraud, failure to report, false documentation and violation of trust, according to Israeli news reports.

And, according to Haaretz, Heftsiba’s CEO Boaz Yona is suspected of embezzling at least $70 million shekels from two building companies under Heftsiba’s control.

Standing outside his still-incomplete apartment building, which he hurriedly moved into last week to ensure that unpaid building suppliers could not confiscate the sinks and cabinets they had recently installed, Chaim exuded frustration.

“I’ve already paid 90 percent, so we felt compelled to move in, even though the empty apartments haven’t been hooked up to the electricity grid. All our money is tied up and we don’t have a bank guarantee, even though [Heftsiba] was legally required to give us one. They said that the law in Judea and Samaria” — the West Bank — “was Jordanian law, and that bank guarantees weren’t necessary.”

Heftsiba’s collapse, which has left at least 4,000 families in the lurch (more than 500 of them lack any type of bank guarantee), has sent shock waves through Israel’s real estate industry.

“Heftsiba is one of the biggest builders and most well-known companies in Israel, which is why the shock is so big,” explains Limor Gruber, senior analyst at Psagot Ofek Investments. “They’ve built 5,000 units, entire communities all over the country and some abroad.

While it remains to be seen how the debacle will be resolved, the affair has already been transformed into a cautionary tale for would-be homebuyers from Israel and abroad.

Heftsiba did not answer its phones this week, so no one knows how many people from overseas purchased apartments from them in Modi’in Illit, Har Homa, Ma’aleh Adumim and Efrat, among other places. Though the number is probably small, because Heftsiba properties are outside major cities and not luxurious, it can be assumed that at least some foreigners purchased Heftsiba homes for their Israel-based children.

“Sara,” who immigrated from Connecticut many years ago, said, “A year and a half ago we helped one of our children buy a three-bedroom apartment in a new project being built by Heftsiba in Beit Shemesh. They had just started digging and said it would take two years to build. We contributed tens of thousands of dollars and our children are paying the rest. Altogether, our family has paid about 85 percent [of the purchase price].

“When we heard that Heftsiba was in trouble, we put a door on the apartment and my husband slept there one night. Now, other people in our situation are banding together and we hope, with God’s help, the apartment will be ready in six months. The banks are trying to be good and understanding of the people affected.”

Asked if she would adopt a different approach in the future, Sara said, “We’ve helped our other children buy apartments [on paper] and there weren’t any significant problems because we depo sited the money directly into the bank, as the law says. The other contractors gave us a form to deposit money in the bank.

“Here, they didn’t give us the form and I gave Heftsiba the check in their office. In retrospect, we should have hired a private lawyer to check out our rights. We should have been more on the case. God willing, this will all be resolved quickly. I hope this won’t dissuade Jews abroad from buying homes in Israel. It is commanded that we all live in Israel.”

Since the end of the second Palestinian uprising, which began to peter out in 2003, foreigners have sunk billions of dollars into the Israeli real estate market. Foreign real estate investments totaled $800 million in 2004, $1.2 billion in 2005 and $1.4 billion in 2006, according to the Bank of Israel.

When it comes to Israeli real estate, experts say, foreign buyers may be even more vulnerable than local buyers. That’s because foreigners tend to be unfamiliar with Israeli law and rely more heavily than Israelis on the word of real estate agents, builders and others associated with the building industry.

Unlike the U.S., where home buyers provide a relatively small deposit on yet-to-be built properties, “it’s not uncommon for Israelis to put down 60 to 70 percent before taking possession,” Gruber said. “It’s done in stages and can be a risky business.”

Risk can be minimized, Gruber said, by hiring a good lawyer and being a stickler for details.

“Just as a buyer from overseas would do his homework in his home country when buying a house or even a car, he needs to do that in Israel as well.”

Debbie Rosen-Solow, a real estate lawyer whose clients are largely overseas buyers, noted that some overseas buyers invest in projects without visiting the plot of land where a project will be built.

“I’m not sure it matters, as long as you have a reputable representative who will visit the place and check everything out, especially if it’s open land. I actually know of a community where a garbage dump was planned for right across the street.”

Both Gruber and Rosen-Silow underscored how vital it is for buyers to hire their own lawyers in any real estate transaction.

“Many times when people purchase a home, they negotiate with contractors and the contractor presents them with a 1.5 percent lawyer’s fee they’re required to pay,” Rosen-Silow said. “What buyers don’t realize is that the lawyer is acting on behalf of the contractor and not necessarily in the buyer’s best interest.”

Potential buyers should also double-check all claims made by real estate agents, Rosen-Silow said, because they are also working for the seller.

Experts say that the only way to ensure buyers will recoup the money they paid toward a property in the event the builder goes bankrupt or there is some other problem is to obtain bank guarantees.

“Even before paying a single cent, you should have a guarantee for all the money you put in, which will be activated every time a payment is made,” Rosen-Silow said. “For every 15 percent you pay, the contractor has to provide you with a bank guarantee.”

Furthermore, the lawyer said, purchasers should demand a letter from the bank promising that it will not take possession of the apartment if the contractor has any outstanding debts.

Finally, Rosen-Silow said, “Don’t pay any money directly to the contractor. By law, every building project must have a separate bank account and buyers must deposit the money into that specific account. From what I’ve read, Heftsiba put all the money that belonged to individual projects into one account.”

Unfortunately, even with everything in place, it can take a year to receive a refund. “You’ll get the money, but it will take time,” Rosen-Silow acknowledged.

Madeleine and Robert Friedbauer of Bergenfield, N.J., say they were able to avoid most building pitfalls by doing their research and letting the professionals check out the project they invested in three years ago.

During a visit this week to their soon-to-be-completed penthouse apartment at Nof Zion, a new community being built on the edge of the Arab village of Jebel Mukaber in East Jerusalem, the Friedbauers discussed why they had chosen this project.

“This seemed like an exciting new adventure and course we were attracted by the view,” Madeleine Friedbauer said of the panoramic vista of the Old City from her apartment’s 1,400-square-foot terrace. “Sure, there was a lot of trepidation because we didn’t know how it would turn out. It’s taken a year longer than expected for the project to be built, but it’s turning out spectacularly well.”

Before purchasing the property, the Friedbauers visited the construction site, not relying on the Nof Zion advertisement that shows a map of Jewish-only neighborhoods but fails to mention the Arab neighborhood of Jebel Mukaber, which is literally one house away from the farthest Nof Zion apartment.

Not that seeing a place ensures its viability.

Chaim, who has no bank guarantee, visited Modi’in Illit several times before signing a contract.

“My brothers live here so we knew the area. We paid $104,000, what we would pay for a one-bedroom in Jerusalem, and not necessarily in a desirable neighborhood,” the young father said, glancing up at his apartment, which could still be taken away to pay creditors.

“All I want is a place to raise my family,” Chaim said.